Delaware Job Hop Stirs Flap

A top Delaware finance official sent out 125 audit notices this year to companies incorporated in the First State. Three weeks ago, he retired and joined the auditing firm expected to do the lion’s share of those audits in exchange for millions of dollars in fees.

As state escheator, Mark Udinski’s job was to collect unclaimed property, such as dormant bank accounts, uncashed checks and gift certificates and life-insurance benefits, and then try to locate and reimburse the rightful owner. This month he became the second holder of that office in a row to leave it for a job at Kelmar Associates, which typically does between 70% and 80% of the audits ordered by the escheator’s office.

Mr. Udinski’s move to the privately held auditing firm doesn’t violate any state rules. The state requires only that he refrain from working on Delaware-related cases for two years. But some critics say the job switch creates the appearance of a conflict of interest.

Among them is Doug Lindholm, president of the Council on State Taxation, which lobbies state governments on tax issues and whose nearly 600 member companies include Coca-Cola, AT&T and Pfizer, which are incorporated in Delaware. Mr. Udinski’s new job “looks like a reward for years of directing business to Kelmar,” he said.

Attempts to contact Mr. Udinski were unsuccessful.

Mark McQuillen, a principal at Wakefield, Mass.-based Kelmar, said that Mr. Udinski was the right person for the job. “He’s a smart, competent guy,” Mr. McQuillen said of the former state official. “There aren’t enough people out there who do that sort of work.”

Mr. McQuillen added that he didn’t sense any conflict in Mr. Udinski’s new role. But, he said, “The state would determine what’s a conflict.”

Mr. Udinski’s predecessor, Patrick Hurley, who also left for Kelmar and works in the firm’s legal department, couldn’t be reached for comment.

Tom Cook, Delaware’s secretary of finance and Mr. Udinski’s former boss, dismissed any suggestion of conflict. “No one has made any allegation at all that Mark has done something improperly,” Mr. Cook said. “If there are people that are criticizing the integrity of the department of finance, Mark Udinski or myself, I suggest they come to me, and they better have proof.”

Some critics aren’t convinced. “It shows the cozy relationship between Kelmar and Delaware, and calls into question the decisions [Mr. Udinski] has made,” said Jennifer Borden, general counsel for Unclaimed Property Recovery & Reporting, which advises companies being audited by the state.

Over half of the nation’s publicly traded companies are incorporated in Delaware. That obliges them to turn over unclaimed property to the state if they can’t locate the owner. If the state sees an inconsistent pattern in the company’s unclaimed-property reports, it will order an audit.

Once in state hands, the money sits in the general fund, unless or until the owner is traced, accounting for a sizable chunk of state revenue—14% in the most recent fiscal year ended June 30, according to state data.

Under Mr. Udinski, a former pro football player who became escheator in 2009, Delaware developed a reputation for aggressively pursuing companies for unclaimed property. During his tenure, the state collected $2.2 billion of such property.

Mr. Udinski “was a big reason for Delaware’s success in the area,” said Chris Hopkins, a partner at accounting firm Crowe Horwath LLP, which has advised several companies involved in unclaimed-property audits.

The state confirmed that the bulk of the 125 audits it ordered this year will be done by Kelmar, which has earned more than $90 million in fees from Delaware over the past three years.

Kelmar’s Mr. McQuillen said it was only natural that Kelmar, one of the largest audit firms specializing in unclaimed property, would get the bulk of the state’s business in that area. “We got those jobs because of our capacity and the quality of the work we do, nothing more. If not us, who?” he said in an email.

Over the years, companies including CA Technologies Inc. and Staples Inc. have paid millions to the state to settle unclaimed-property audits. This year, Select Medical filed a lawsuit alleging Delaware officials were improperly claiming $300,000 in unclaimed-property fees and called their tactics “unconstitutional and illegal,” according to the complaint.

A company representative didn’t return calls seeking comment. The state has declined to comment on the allegations.

Mr. Udinski’s successor, David Gregor,said he would be reviewing the auditing process, which could lead to some “fine-tuning.”

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